It is Sunday night and the futures are tanking again. With the S&P futures down -8 as I write this the Monday open looks weak.
There are multiple problems impacting the futures today. The Greek debt swap deal is still not done. Both sides claim they are very close but still no deal ahead of the EU summit on Monday.
Germany is pushing to put a budget hawk in Greece with veto power over any expense not properly budgeted and approved. It would be the end of Greece as we know it and obviously they rejected the proposal as "deranged."
There are several reports out this weekend attributing "Greece will default" comments to multiple people including Angela Merkel, the Prime Minister of Germany.
There are also multiple articles reporting highly placed Greek officials as saying they already have a plan for leaving the euro and it will be announced in early March.
Given the "Greece will default" comments and the comments about leaving the euro it is not surprising the holders of 207 billion euros in Greek debt are hesitant about signing away their rights in exchange for new 30 year bonds with a 3.5% coupon. The creditors committee tried for weeks to get Greece to guarantee the bonds with no success. They wanted some assurance that the new bonds would actually be worth something. If Greece is really planning on going defaulting, leaving the euro and going back to Drachmas then the bonds are not going to be worth the paper they are printed on.
This witches brew of negative events surrounding Greece today could really mess up our markets this week. This is strange since Greece has about the same GDP as the state of Maryland. I would have thought a Greek default would already be baked into our market but the futures are saying different.
With the earnings for Q4 turning to negative I expect the market to weaken but until it does we will continue to play the current trend.
I am going to add one play today even with the expected negative open. We were stopped on one last week and I want to keep an active roster of plays. Don't enter the position unless the market is positive.
Send Jim an email
Current Position Changes
MMR - McMoran Energy (Short Put, Stopped)
The short $12 put was stopped out on McMoran on Monday when the stock hit our stop at $12.95. We were already positive in the position and even with the stop we ended up with a breakeven.
Closed MMR Feb $12 Put, premium 0.72, exit 0.74, loss -0.02
We actually had two MMR positions. The second one was a January $15 Covered Call. That trade was stopped out @ $13.25 with the call at 35-cents. Our premium received was $1.25 leaving us with a 90-cent gain. See the graphic above for an easier to understand description.
For some reason unknown to me, probably a senior moment, I neglected to do the closing summary on several plays last week. I am going to catch up here.
LEAP was a covered $9 Jan call and the stock ended expiration Friday in the money and the position was called away. The premium received on the call was $1.19 with the stock at $9.55. That gives us a net premium of 64-cents. The position was called away and that premium was our gain.
The Sandridge $9 covered Call expired leaving us with a 29 cent premium to further reduce our stock cost to $5.80. We will write another call as soon as the premiums inflate again. This volatility under 20 on the VIX has reduced premiums to nearly zero.
New Short Put Recommendations
New Covered Call Recommendations
Long Term Recommendations
CRR - Carbo Ceramics (Short Put)
Carbo reported earnings last week and missed the street estimates. The volume of fracking materials Carbo shipped to the Haynesville Shale declined by 70% as more drillers shutdown gas rigs and sent them off to find a liquids rich location half way across the continent.
I believe this is a temporary situation. Once the drillers setup shop again on top of an oil play the fracking materials are going to flow. If anything the move should be beneficial for Carbo because it put the drillers on a more stable path.
I am recommending a short put and a long put to protect against an unexpected decline. The long put will be a shorter duration so we can get it at a cheaper price. If the play is not going in our direction by the time the long put is facing expiration we will exit the short put and cancel the play.
Do not enter this position unless the S&P and CRR are both positive by 10:AM
Sell short CRR June $90 put, currently $7.60, no stop
Buy Long CRR Feb $90 Put, currently $1.65, no stop
Chart of CRR
New Aggressive Recommendations
Existing Play Recommendations
Links to original play recommendation
BAC - Bank of America (Long Term)
BAC - Bank of America (Update 8/31)
BZH - Beazer Homes (Long Term)
MDR - McDermott International (Long Term)
BK - Bank of New York Mellon (Long Term)
YHOO - Yahoo (Long Term Combo)
PHM - Pulte Homes (LT Leveraged Combo)
JEF - Jefferies (LT Leveraged Combo)
HITK - Hi-Tech Pharma (Covered Call)
LEAP - Leap Wireless (Covered Call)
MCP - MolyCorp (Short Put)
IOC - Interoil Corp (Short Put)
MMR - McMoran (Short Put)
CTSH - Cognizant Tech (Short Put)
WFC - Wells Fargo (Combination)
There are several different formulas for determining margin requirements for naked put writing. These are normally broker specific and some can require larger margin requirements than others.
Here is the most common margin calculation for naked puts.
100% of the option premium + ((20% of the Underlying Market Value) - (OTM Value))
For simplicity of calculation simply use 20% of the underlying stock price and you will always be safe. ($25 stock * 20% = $5 margin)
Prices Quoted in Newsletter
At Option Investor we have a long-standing policy prohibiting the editors and staff from actually trading the individual recommendations in order to conform to SEC rules concerning trades.
The prices quoted in the newsletter are the end of day prices in most cases.
When discussing fills or stops the prices quoted are the bid/ask at the time the entry trigger or exit stop is hit. This is NOT a price that someone on staff actually got using a live order.
For entry/exit points at the market open the prices quoted will be the opening print. The majority of the time the readers are able to get a better fill than the opening print because of market maker bias at the open.
For trades with an opening qualification the prices quoted will be the bid/ask at the time the qualification was met.
All of these rules normally produce worse prices than an active trader would normally get. Because they are standardized there may be some cases where a price quoted was better than an actual fill. If you received a price that was dramatically different than what was quoted please let us know.